WORLD: Russian markets slide as ruble, oil weaken

Investors fear nation will be isolated following Georgian war

By NATALIYA VASILYEVA - Associated Press | Friday, September 5, 2008 4:13 PM PDT ∞

MOSCOW ---- Russia's stock market continued a long slide Friday as the government intervened to prop up the ruble amid slumping oil prices and capital flight.

The U.S. dollar-denominated RTS benchmark index dropped almost 4 percent to a low last seen in June 2006, fueled by fears Russia faces isolation following its intervention in Georgia and tumbling commodity prices.

The index closed down 3.76 percent, to 1,469.15 points, after diving below 1,600 points on Wednesday. The ruble-denominated MICEX index fell 3.68 percent, led by Norilsk Nickel which shed 8.78 percent and VTB bank ---- down 7.19 percent.

Moscow-based analysts and traders say they see few signs that the market has hit bottom.

While stock markets are posting losses globally, Russian stocks have been particularly volatile, battered in recent months by a power struggle over Anglo-Russian oil joint venture TNK-BP and Prime Minister Vladimir Putin's public assault on mining company Mechel, which has lost half its market value.

Russia's five-day war with Georgia last month, combined with a sharp drop in oil prices last week, have further shaken investor confidence.

"The downward movement is likely to persist at least until the presidential election in the United States in November," said Maxim Osadchiy, chief analyst at investment bank Antanta Pioglobal. He said the RTS index could soon drop to 1,300 points, another "psychologically important level."

Timur Nasardinov, chief trader at the Moscow-based investment bank Troika Dialog, said all major institutional investors have already pulled out from the market, so he doesn't expect further big selloffs.

"Politics is over now," he said, adding that Russian stocks' fall will now match that of their global peers. Sergei Karykhalin, chief analyst from the investment bank Kapital, agreed, saying that "declining global markets and slower economic growth in Europe are more important for the Russian market now."

Nasardinov said the market could get a lift from the Russian Energy Ministry's statement on Friday that it will push to significantly reduce the tax burden on oil companies.

Analysts say foreign investors have pulled out between $7 billion and $10 billion from Russia since Aug. 7, when Georgia launched an assault on separatist-held South Ossetia. Russian armor and air power quickly rolled the Georgians back, and laid waste to the country's military infrastructure.

Russian central bank Deputy Chairman Alexei Ulyukayev, by contrast, on Friday estimated that $4.6 billion in foreign capital fled the country during August. However, he said, that still leaves a net total foreign capital inflow to Russia of $25.4 billion over the past eight months.

Ulyukayev also confirmed market rumors, saying Russia sold a "significant" amount of foreign currency Thursday to prop up the Russian ruble, which has taken a battering as oil prices and Russian stocks slide.

He declined to give the exact amount, but market watchers say the government may have sold between $5 billion and $10 billion.

The central bank official denied that the government may take further measures to bolster the ruble.

Karykhalin, of Kapital investment bank, described the move as positive. "It has reassured foreign investors who hold some of their assets in rubles," he said.

The official Russian ruble-U.S. dollar rate currently stands at 25.4 rubles per dollar ---- close to a one-year low. While the ruble was strong earlier this year economists complained that it was damaging the economy, making Russian exports less competitive.

"Information that the central bank will withdraw funds from the currency market is a signal that the ruble will be getting stronger," said Nataliya Orlova, chief economist at Moscow-based Alfa Bank.

She predicted the dollar-ruble rate would roll back to 23.4 rubles within 3 months.

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